Ask The Experts: Money Matters

By Mike Miles

TSP withdrawal

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Q. If I retire in December under MRA +10 and I’m 59 years old, how long do I have to wait to request a full withdrawal with monthly payments? Also, can I request the same day to take a partial lump-sum withdrawal, or do I have to do them separate? Read the rest of this entry »

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TSP withdrawal options

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Q. I am under FERS and contribute the maximum amount into TSP. When I am eligible to retire (57-1/2), do I have to immediately start collecting out of my TSP once retired, or can I roll it over into another bank or institution into a 401K without penalty? And how does one receive payments if I can’t roll it over? Read the rest of this entry »

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Fund allocation

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Q. I am a FERS employee and plan to retire in December 2015 at age 68-1/2 with 30 years, nine months of government service. I presently invest my TSP with G Fund 60%, F Fund 10%, C Fund 10%, S Fund 10% and I Fund 10%. Should I switch the money out of the G Fund and invest in C Fund 60%, S Fund 20% and I Fund 20%, as they seem to be doing so much better than the G Fund? Read the rest of this entry »

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Beneficiary in TSP

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Q. I have reviewed information at the TSP website. I have been unable to locate information regarding survivor benefits in the case of a nonannuity, monthly distribution without 10-year certain enabled. What are the rules in this most simple TSP account distribution plan?

A. If you die while receiving automatic monthly payments from your TSP account, the payments will end and the remaining balance in the account will be distributed to your beneficiaries.

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TSP allocation

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Q. I work for the Defense Department. I have $75 biweekly going into the G Fund. I am in my early 30s and want to build my money. I don’t see it moving much in the G Fund, and I have been investing for four years. I can afford to invest $100 biweekly but don’t know what fund to put my money in for it to grow. My annual income is $38,780.

A. Given your circumstances, I suggest that you invest all of your Thrift Savings Plan money in the L 2050 Fund for the foreseeable future.

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Risk efficiency

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Q. I saw you use the term risk efficiency in a recent response, and it made me curious. I have a nice little amount in the Thrift Savings Plan now. I don’t think I will be needing it in the future, except to hand down to future heirs, and so have tried to maintain a 70 percent stocks (35 percent C, 15 percent S and 20 percent I), 15 percent F, 15 percent G ratio. I read in a financial magazine (sometime around 2009) that a 70/30 ratio of stocks to bonds and/or cash reduced the risk considerably over a 100 percent stock portfolio, and didn’t reduce returns significantly. Do you agree, or do you have some other thoughts on what is risk-efficient for long-term growth?

A. Risk efficiency is a measure of how close an investment portfolio lies to the “Efficient Frontier” — the set of portfolios that mix assets together in ways that produce the maximum expected rate of return for the level of risk they produce. I can’t tell you how risk-efficient your asset allocation model is, but I’d guess it’s pretty risk efficient. Note that this doesn’t mean that it’s risk-appropriate. The correct asset allocation will be both.

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TSP allocation

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Q. I have 14 years of federal service and have always been in the C Fund 100 percent, currently with $230,000. For the past few years, I’ve contributed at 15 percent. I was not very attentive to my Thrift Savings Plan and, after 2008, was leery of moving after the big losses and getting into L2030. In 2013, the C Fund was amazing, but 2014 has been way down so far. How do I know the right time to transfer the whole thing to an L Fund, and is that the right thing? I will probably retire by 2035.

A. Your current asset allocation scheme is risk-inefficient. You should move to the appropriate risk-efficient asset allocation scheme, using all five of the TSP’s basic funds, as soon as possible.

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F Fund

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Q. It seems everywhere a person reads, the “expert” advice is to get out of bonds. It’s likely that interest rates will climb soon (they certainly will not go lower), the world is awash in debt etc. Your advice is to substitute a portion of other funds in place of F.

Given the predicted bond climate, why not reduce F Fund allocation to near zero? Is there some reason I’m missing for maintaining an allocation in F above low single digit percentages or perhaps no F fund allocation at all? In other words, if the F Fund is about to incur losses, why not move it all out for the short term?

A. As I have said, and you confirm, I have no objection to substituting G Fund for F Fund in the current interest rate environment. The reason to keep some allocation to bonds is for their ability to hedge stock risk. If the stock market loses 50 percent of its value again (for the third time since 2000), that F Fund exposure will look pretty smart.

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TSP vs. IRA

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Q. I am a federal employee, almost 30 years old and contribute to my Thrift Savings Plan, as well as a Roth IRA toward retirement. I contribute the maximum to my Roth IRA at $5,500 a year and contribute 15 percent of my $82,500 salary (approximately $12,500 a year). I have a comfortable emergency account, life insurance, $500 per month to a 529 plan for my 1-year-old, on top of the basic necessities.

How much should I be contributing if I can’t max both my TSP and Roth IRA? Should I continue with this allocation, or should I be maxing my TSP at $17,500, only putting $500 into my Roth IRA. After reviewing some items, I do not know the pros and cons to each as far as this allocation of funds.

A. I suggest that you maximize your TSP contributions before contributing to any other retirement account. The TSP is the best retirement savings and investment vehicle you’ll find. Its low cost and access to the G Fund make it so. What makes you think that your Roth IRA is a better choice?

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G Fund

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Q. In your recent column “4 keys to TSP success,” you mentioned, regarding asset allocation, to “diversify your holdings among cash, stocks and bonds to hedge the risk lower.” I agree with this approach wholeheartedly, but ask where in the TSP to keep “cash”? There is no money market option, just the L funds (which I don’t use, preferring to personally allocate my investments), and the G, F, C, S and I funds.

By the way, I took everything out of the G Fund and ceased all future allocations to it when there was a proposal by our leaders last year for the federal government to be able to borrow against it. Do you have any update or comment on this proposal?

A. The G Fund is a cash equivalent with an above-market rate of return. It’s as safe as anything you’ll find.

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